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The arbitrations – basically settling a dispute outside of the court system – are happening because many Mississippians who had “managed money” accounts with Morgan Stanley in 2008 and 2009 lost more in the stock market than they should have, and did not get it back when the market rebounded.
Lee explained that in 2007, Morgan Stanley began handling managed money accounts, or discretionary accounts, in which the financial advisor makes all the buying and selling decisions for the client after the initial investment.
In contrast, most people who invest with firms like Morgan Stanley or Edward Jones have what is called a brokerage account, in which the broker must contact the client before buying or selling.
“With a discretionary account, you’ll have some very intensive meetings and the advisor will build you a portfolio based on what you want. Then the advisor will make all the decisions about when and what to buy and sell,” Lee said.
“That comes with a fiduciary duty for the advisor to act in your best interests instead of his own. It’s a huge responsibility.”
Approximately 150 Mississippians had discretionary accounts with the Ridgeland office of Morgan Stanley in 2008, when the market “cratered,” Lee said.
“This group of clients did worse than the market overall in 2008. The market might have lost 38 percent, 30 percent, and these people lost more like 50.
“That’s plausible with a recession, but then the next year, when the market shot back up, the market gained back 30 to 35 percent, and these clients only went up maybe four percent.”
LEE’S CLIENTS found that their discretionary accounts were not personalized at all. “They were one-size-fits-all. The advisors were buying all the same stocks for different people with a computer program. So the portfolio for an 80-year-old widow and a 45-year-old surgeon might look the same,” Lee said.
Since Morgan Stanley clients sign arbitration agreements that prevent them from filing lawsuits against the firm in court, they can file for arbitrations instead.
FINRA, the Financial Industry Regulatory Authority, handles the arbitrations, which are a lot like court cases but are decided by a panel of three arbitrators instead of a judge and jury. And FINRA is not a government agency, Lee said.
FINRA generates a random list of arbitrators, and each side gets to strike people from the list. Then the arbitration is held, often at a hotel.
“FINRA will select a hotel with conference facilities, like the King Edward or the Marriott downtown,” Lee said. Lee’s clients claimed Morgan Stanley and two of its financial advisors were liable for negligence, gross negligence, suitability, fraud, and breach of fiduciary duty. On June 24, arbitrators gave Lee’s five clients a $388,000 award against Morgan Stanley to compensate them for their losses.
(The five clients were related to each other by blood and business ties. Two were from the Northside, two from Booneville, and one from Bay Springs. Their names were not immediately available at press time.) Lee said the next arbitration against Morgan Stanley was set to resume this week, and another should begin in December. Most of the claimants in future arbitrations are Northsiders, he said.
This post is a paid advertisement. This story first appeared in the Northside Sun and was written by Katie Eubanks. It is reprinted with permission of the Northside Sun.